The Financial Services Authority yesterday raised the possibility of creating a two-tier market for share listings in London to help make clear to investors which companies adhere to the strictest corporate governance codes.

In response to shareholder concerns at the confusion caused when international firms list in London, the City regulator is suggesting creating a "tier one listing" and "tier two listing" to differentiate between the current primary listing and secondary listing regimes. A company with a primary stock market listing must comply with a tougher corporate governance regime - the UK's combined code - than that required by a secondary listing which only demands compliance with EU rules.

The FSA also suggests that companies following the current secondary listing regime or that for global depository receipts (GDRs) could be reclassed as not being "officially listed" by the FSA.

The regulator has stepped back from introducing any changes to the rules for GDRs, a market dominated by professional investors, though it was facing calls to rethink that decision last night.

In addition, the FSA is trying to tackle the inequality faced by a British company listing in London and one from overseas which can choose whether to comply with the stricter rules for a primary listing or the less onerous ones for secondary listing.

At present British companies can only select the primary listing route. The FSA is now considering whether to relax its rules, though this has immediately led to concerns about the implications for the London Stock Exchange's Alternative Investment Market, the junior market which has a more relaxed set of listing rules.

The FSA also wants to establish whether there would be "greater clarity" if all primary listed companies, be they from overseas or Britain, were required to comply with the UK code. The FSA said it wanted to establish whether such a demand would "lead to substantive changes in behaviour by investors and issuers".

The regulator noted that the company which compiles the FTSE indices now took into consideration overseas companies' compliance with the combined code and other shareholder rights before including them in its indices.

The FSA is seeking responses to its discussion paper by April but early comments suggested it could provoke some controversy. Saul Sender, partner at law firm Reed Smith Richards Butler, said a second tier of listing could devalue London's brand. "What a main market listing offers is the kite mark of quality," Sender said.

Tim Stocks, partner at law firm Taylor Wessing, said: "One potential worry is the effect these proposals could have on Aim. UK companies have not been allowed to have a secondary listing. Under today's proposals, UK companies may be allowed such a listing. This seems almost identical to a listing on Aim, leaving the junior market almost redundant in some cases."

The fund manager who helped to kickstart the debate, Karina Litvack, head of governance at F&C, said "We are pleased the FSA has put this out for discussion. It is focusing a lot on labelling which is necessary but not sufficient".